Short Microsoft, Buy Ford if CEO Walks

NEW YORK (TheStreet) -- Rumors are still running wild that Ford (F) CEO Alan Mulally will soon be boarding a jet for Seattle to replace current Microsoft (MSFT) CEO Steve Ballmer.

On Monday, Jim Cramer and Stephanie Link sold their position in Ford, picked up some Macy's and told Action Alerts PLUS subscribers that the risk-reward ratio was better at Macy's than Ford. I'm still long because I don't buy this rumor, but believe Ford will be fine without Mulally anyway.

Some say he has a home in Seattle and is yucking it with Microsoft execs on a regular basis. Perhaps adding even more speculation into the mix is Mulally's refusal to flat-out deny he will go to Microsoft.Sure he has indicated he is happy at Ford and plans to stay through 2014, but that doesn't mean things can't and won't change.

It only added fuel to the fire when Ford's board of directors granted Mulally permission to leave if he chose to go that route.

Once several weeks of rumors seemed to be quieting, a short-list of potential candidates became public days ago. Of course, Mulally was included on the list, along with former Nokia (NOK) CEO Stephen Elop and two internal candidates: Tony Bates, head of business development and Satya Nadella, executive vice president of Microsoft's cloud division.

But I must ask, of all the people named above, why would Mulally be the top choice to turn the company around?

I know he's a great leader with incredible focus, drive and determination. He ran Boeing (BA) very well and steered Ford clear of bankruptcy five years ago.

But the dude's 68-years-old! No offense to Mulally, but if you're Microsoft, don't you want a little bit younger blood running a technology company of all things?

And beyond that, Mulally is an industrial guy, not a computer whiz. He doesn't dabble in the cloud, coding, or software. No, he likes aerodynamics and machinery.

Regardless of what I think or write though, Microsoft seems more than willing to take him if he wants to come on board. I believe there is nothing for Mulally to gain by leaving Ford.

Again, he did a spectacular job avoiding bankruptcy, as well as improving efficiency and ultimately, returning Ford to profitability. For the last several years, investors have been spooked by retirement speculation, and cheered when he extended his earliest departure date -- currently agreeing to stay through 2014.

Now all of a sudden he's "likely" headed to a $315 billion market-cap company (roughly five times that of Ford), to turn things around? The "likely" quote above is according to Nomura Securities' Rick Sherlund, who expects the announcement to take place in roughly one month.

I disagree. Mulally is likely to stay right where he is, because doing anything else aside from retiring simply does not make sense.

Microsoft is caught in a secular declining PC market that Mulally -- or anyone else for that matter -- is unlikely to fix, no matter how much fat you trim off the company.

Microsoft can continue its cash-cow ways with its software business. But if it ever wants a chance at growth, it has to make some serious moves. Moves that are unlikely to come from an almost 70-year-old industrial chief exec.

Of course, if the move ever materialized, it would create the perfect trade: Short Microsoft, long Ford.

Ford will undoubtedly selloff, perhaps for weeks or even months, as its top leader who righted the ship, steps down.

There is no question that it will selloff on the news, just like there is little question as to why the stock has been stuck-in-the-mud as of late due to this speculation, despite strong sales numbers and a good earnings quarter.

Just like a selloff in Ford would be likely, a rally in Microsoft is essentially guaranteed. With the stock undeservingly up 41% year-to-date, it is sure to jump on this news, perhaps as high at $40 per share, maybe higher.

In this event, I would be inclined to buy the automaker's dip and sell the tech company's rally.

It's simple. Mulally is just one man. Ford is on the right track now and will not be completely derailed without him. Management is competent enough to continue its operations for the foreseeable future.

In essence, Mulally has already started rolling the snowball, Ford will only gain in size and momentum as it continues to move along. From an operations standpoint, Ford will likely continue to deliver on both sales and earnings.

A similar concept is true with Microsoft: Mulally is just one man. Even if he were able to change the company's fate, it won't be anytime soon. Any sort of major business development or reorganization will take several quarters, minimum, making it a perfect short.

But who knows. Maybe Mulally will leave Ford in favor of Microsoft and the former will be completely screwed while the latter is completely rejuvenated. That's always a possible outcome. But in my mind, the likelihood is small and when trading, I like when my probabilities are high.

Mulally's worked at two companies since coming out of college (Boeing and Ford), and I don't expect there will ever be a third.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.